EFTA Document EFTA01458643

Real Assets: Commodities — As China represents the bulk of global demand for industrial metals, the recent sell-off in metal prices, from copper to steel, was not unexpected. — Previously, the fall in commodity prices was seen as driven mainly by global oversupply but here the problem is on the demand side. — Figure 3 compares China's industrial production growth and the industrial metal price index. — In late 2010 China's manufacturing production growth was around 15%-20% as a consequence of China's huge fiscal stimulus being channelled into investments and infrastructure, worth about 4% of GDP. — This led to a substantial increase in building and production, contributing to a real estate overheating. When the correction started in 2012, economic growth in China fell and led to a downtrend in industrial metal prices. — To end the decline in industrial metals prices, we therefore might need both a reduction of supply and an increase in demand (from China in particular). Global FX 22 20 18 16 14 12 10 8 8 4 2 Index re 40 re tie 49 49 e 5000 4500 4000 3500 3000 2500 2000 1500 1000 China's industrial production growth year-on-year (%. LHS) —London Metal Exchange industrial metals prim index (RHS) Figure a Industrial metals prices and Chinese industrial production Source: Bloomberg Finance L P. Deutsche AWM. Data as of September 30. 2015 When a good is seen as increasing in supply, normally its price goes down as its scarcity reduces. The same is true for the EUR. When the ECB signalled (about a year ago) its readiness to increase the supply of EUR via the driving its balance sheet size yet higher, markets logically started to anticipate a lower EUR. The increase in the ECB balance sheet has stalled in the last two months due to a slowdown in the buying of bonds by the ECB. This was mainly a function of less liquid bond markets in the summer lull, which has now ended. The latest comments of the ECB's president in the press conference after its meeting point to a clear ECB bias to be ready to expand or prolong its QE if needed. The only question is when and here markets are getting more impatient. If the ECB does indeed push QE into a higher gear, this could weaken the EUR, as Figure 4 suggests. Deutsche Asset & Wealth Manaciertteet October 2. 2015 Focus of the week Commodities: Industrial metals prices are likely to remain closely tied to the state of China's economy. Global FX: We expect EUR strength to continue to be affected by the level of ECB bond purchase activity. 3600 3400 3200 3000 2800 2600 2400 2200 2000 1800 1600 P 'P1' e e S 1/4 4r3S. ECB Balance sheet in EUR bn (LHS) tide-weighted EUR (Bank of England index. RHS) Figure 4 The EUR and the ECB's balance sheet Source: Bloomberg Finance L P. Deutsche AWM. Data as of September 30. 2015. No assurance can be given that any forecast or target can be achieved. Forecasts are based on assumptions, estimates, opinions and hypothetical models which may prove to be incorrect. Past performance Is not indicative of future returns. Investments come with risk. The value of an investment can fall as well as rise and you might not get back the amount originally invested at any point in time. Your capital may be at risk. 112 107 102 97 92 4 CONFIDENTIAL — PURSUANT TO FED. R. CRIM. P. 6(e) CONFIDENTIAL SDNY_GM_00264828 DB-SDNY-0 18644 EFTA01458643